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State Street downtown has highest vacancy rate ever, but experts say there is hope

Vacancy rate on State Street downtown is higher than ever
Vacancy rate on State Street downtown is higher than ever 02:42

CHICAGO (CBS) -- State Street is a cultural anchor, a shopping destination, and an important part of Chicago's history.

The Loop stretch of State Street has had its ups and downs – in the late 1970s, it was turned into a pedestrian mall and bus-only route in an effort to counter the effects of residents and businesses fleeing to the suburbs. In the 1990s, this was reversed, and the downtown stretch of State Street was revitalized with a new hybrid of retail, office buildings, entertainment, education, and culture, the Chicago Loop Alliance notes.

The 1922 classic "Chicago (That Toddlin' Town)," written by Fred Fisher and famously covered by Frank Sinatra in 1957, makes reference to "State Street, that Great Street," where "they do things they don't do on Broadway."

But right now, State Street has seen better days. The storefront vacancy rate on the Loop stretch of State Street is higher than ever before – as the downtown area tries to make a post-COVID comeback.

"Fifty percent of the storefronts on the east side of State Street are vacant," said John Vance, principal at Stone Real Estate. "There is a palpable; a visible vacancy on State Street."

It is especially noticeable between Monroe and Adams streets – the block that belongs to the iconic Palmer House Hilton.

"From Monroe to Adams, every single storefront is vacant," said Vance. "So when you're walking on that block, there's just so much empty space - which then has this effect of hindering leasing."

Meanwhile, Old Navy at 150 N. State St., at Randolph Street, closed last year. The space also remains vacant.

Vance said short-term leases, or "activations," for retail or art galleries could make a major difference.

"Especially when we're dealing with a lot of dark storefronts, turn the lights on," said Vance. "Get someone in there. Make it feel energized."

Michael Edwards, who leads the Chicago Loop Alliance, said that is a conversation they're having with the city right now.

"To activate those storefronts through art and culture; through artists' studios - temporary space to kind of bridge us between where we are now and standard retail that probably won't be here for the next 18 months," Edwards said.

Edwards also mentioned the summertime Sundays on State festival, which he said "really drives business activity down to our commercial corridor."

Other revitalization efforts are happening all around State Street. Just this week, JPMorgan Chase - one of Chicago's larger employers - unveiled plans for a major investment in the Chase Tower.

"I'm a believer that it comes back," said Vance. "State Street needs smaller wins - smaller wins to get momentum to the big win of really, 'Great, retail is back.'"

Broader downtown Chicago trends

Taking a larger look at The Loop, there's a 23.5% vacancy rate right now. Experts said they want to see that number closer to 10%.

There has been progress compared with the height of the COVID pandemic in 2020 and 2021. In March of last year, pedestrian counters along State Street and Michigan Avenue showed those downtown streets at 85% of their 2019, pre-pandemic, foot traffic numbers. At the peak of the pandemic, they showed a low of 20%.

But numerous other issues remain a problem – including office building vacancies.

"Due to the COVID-19 pandemic and increased costs of doing business, Chicago's downtown office buildings are experiencing record high vacancy and drastic cuts in value from 40% to 80%, threatening jobs and economic vitality across the city," Farzin Parang, executive director of the Building Owners and Managers Association of Chicago (BOMA/Chicago), said in a statement. "We have a diverse economy with important strengths, but it is essential that we invest in our downtown if we want to support growth and prosperity for all residents."

BOMA also said the value of whole buildings downtown has been drastically reduced – as evidenced by building sales figures.

In September 2023, the office tower at 230 W. Monroe St. sold at a 63% discount, BOMA noted. In January of this year, the building at 300 W. Adams St. sold at an 89% discount, while the building at 150 N. Michigan Ave. sold at a 50% discount, BOMA said.

Meanwhile, a Cushman & Wakefield report on the Chicago market for the fourth quarter of 2023 said the region showed signs of stability and growth. But the report also said sublease availability is up 32.8% over the last year – the highest record since the firm started tracking sublet inventory.

Most of the space up for subleasing is vacant – and the highest share is in the Loop and West Loop, which account for 60% of subleases, Cushman & Wakefield reported.

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